Bitcoin advocates will take literally any news that you might think was Bitcoin going badly, and say “this is actually good news for Bitcoin!”

Certainly all the news I post about Bitcoin is actually good news for Bitcoin. There is no thing that is not good news for Bitcoin. Exchanges kicked out of China? Good news. Price crashes? Good news. Nuclear war sends civilisation spiraling down into the grim meathook Mad Max petrolpunk future? Good news, probably.

Why Bitcoin mining and proof-of-work exist

Satoshi Nakamoto, Bitcoin’s inventor, needed a way to add verifiable transactions to a ledger, making sure nobody spent a coin twice — but without any central authority. This was the key requirement for Bitcoin.

(As I go through in chapter two of the book, Bitcoin had political design requirements that don’t work and can’t work. This is why it’s so weird and hard to understand, and why Bitcoin cultists shout twice as loud whenever it fails in yet another way.)

Proof-of-work mining is an ugly kludge of a hack — but it was the only way Nakamoto could think of to do this.

How Bitcoin mining works

Proof-of-work Bitcoin mining is built around wasting resources as fast as you possibly can.

You may have read in the papers about Bitcoin mining involving “complex calculations.” This is incorrect — none of the calculations are complicated. It’s working out a hash — a number calculated from a piece of data — like the check digit on your credit card number, but longer.

It’s very quick to go from the data to the hash, but impossibly slow to start from a desired hash and guess the data that would generate it.

A miner puts together a block of transactions that are waiting to be processed. They also tack on the hash of the previous block, and a random number (the “nonce”). They calculate the hash of the resulting block. If that hash is a small enough number … they win the bitcoins! And their block is added to the ledger — the blockchain.

The calculations required to build the blockchain ledger could be done on a 2007 iPhone or a Raspberry Pi — all the rest of the electricity is literally wasted, just to run a lottery to decide who gets the bitcoins this time.

All those computers doing Bitcoin mining just buy 14 sextillion lottery tickets every ten minutes, with one winner.

That’s the “work” that mining wants “proof” of — generating lottery tickets. You show your commitment, and how much you deserve the Bitcoins, by wasting power faster than everyone else.

If you want to win more, you need to add more computers, to generate more lottery tickets. This will soon lead to winners coming up more often than once every ten minutes. Nakamoto thought of this — and so, every 2016 blocks, the difficulty goes up or down, to keep it at one winner every ten minutes.

Mining ends up in an evolutionary arms race — a Red Queen’s race, where you run as fast as you can to stay in the same place — leading to ever-increasing power usage, for about seven transactions a second maximum, and two to four in practice.

Thus, Bitcoin is anti-efficient — the more bitcoin is used, the fewer transactions it can process per watt-hour. Bitcoin currently uses 300kWh per transaction, and by the end of 2018 this will be 900kWh — for the same two to four transactions per second.

Bitcoin gets less efficient with time, not more efficient

Non-technical people often assume that Bitcoin will get more efficient as it goes on — like other technologies do. This isn’t the case at all.

With every other technology, the economic motivation is to reduce energy costs. But with Bitcoin, you make your bitcoins by spending as absolutely much energy as you can throw at the problem.

More efficient mining hardware comes out all the time — but it’s then set competing against other mining hardware of the same model, and the efficiency improvements don’t advance anything.

Thus, Bitcoin’s energy efficiency only gets worse with time — which is what we see.

Hal Finney — the second Bitcoin user, and Satoshi Nakamoto’s beta tester for Bitcoin 0.1 — noticed a couple of weeks after Bitcoin 0.1 was released that proof-of-work mining had obvious problems with externalities: “Thinking about how to reduce CO2 emissions from a widespread Bitcoin implementation.”

Thinking about how to reduce CO2 emissions from a widespread Bitcoin implementation

But “number go up” — the promise that Bitcoin will let you get rich for free — was reason enough for some startling intellectual parkour, as Bitcoiners tried to justify the unjustifiable.

But we need proof-of-work for security!

Anyone can check your new block of transactions is OK quickly — it’s generating a new block that’s difficult.

Proof-of-work means that if you want to fiddle what transactions get added to the blockchain, or fake the past contents of the blockchain, you need the mining power to do so.

This means the blockchain is a very robust transaction record … once you’ve got enough blocks after your transaction — enough “confirmations” — to be sure your transaction is in the longest version of the chain.

So advocates justify proof-of-work as necessary for security. This small part of Bitcoin is indeed stupendously secure — nobody’s broken it yet!

But nobody attacks a system at its strongest point — they go for the weak points. And Bitcoin has plenty of weak points. Hackers go for holders’ bad security, exchanges’ bad security, an amazing variety of straight-up scams (see chapter four) and so on. And they do really well out of this.

And if you steal someone’s bitcoins — they’re yours now. Because Bitcoin transactions are irreversible.

Bitcoin advocates brag about the six-inch-thick steel blast door — and think making it a twelve-inch-thick blast door is super-important — but they ignore the bit where it’s in a plastic frame.

But we need proof-of-work for decentralisation!

Decentralisation is a hugely important part of the Bitcoin pitch. It is essential to Bitcoin’s political pitch that there can be no central controlling body. If a single miner got 51% of mining power, they could mess with the blockchain in all sorts of ways.

Mining was a land of opportunity back in the early days — anyone could participate, easily! Per Nakamoto, in February 2009:

You could say coins are issued by the majority.

Bitcoin succeeded in widely distributing mining, and hence payouts … for a few years.

The trouble is that proof-of-work has economies of scale. The larger your mining operation, the more efficient it is — the more hashes it can calculate per watt-hour. This means proof-of-work mining naturally centralises.

Mining went from being calculated on computer CPUs, to being calculated on video cards, to being calculated on FPGAs — Field-Programmable Gate Arrays, chips you can program the function of — to ASICs — Application-Specific Integrated Circuits, that do one specific job super-efficiently and nothing else.

By late 2013, ASIC-based miners were coming on line. But by early 2014, one company, Bitmain, made most of the chips, and continues to control cryptocurrency mining. By mid-2014, one mining pool, GHash, had gone over 55% of all mining.

The majority of Bitcoin mining in 2018 is done by only three mining pools. This is central issuance — decentralisation is long dead. But we’re still wasting all that power.

But only proof-of-work gives us true immutability!

Bitcoin evangelist Andreas Antonopoulos doesn’t address objections to proof-of-work in 2016’s The Internet of Money. By 2017, and The Internet of Money Volume Two, he couldn’t get away with this — so chapter 4 is about “Immutability and Proof-of-Work”:

A new maximum was defined, a new maximum in terms of what it means to be immutable for a digital system. Nothing is as immutable as bitcoin; bitcoin defines the end of that scale at the moment, so it redefines the term immutable.

… The characteristic that gives bitcoin its tamper-proof capability is not “the blockchain”; it’s proof-of-work. Proof-of-work is what makes bitcoin fundamentally immutable.

This is a plausible claim — the Merkle tree data structure makes the Bitcoin blockchain tamper-evident, but it’s the amount of mining you’d have to do that makes it unalterable in practice.

But does this justify the massive expenditure? Antonopoulous is very impressed by the concept of true immutability:

You may think “historically important” is a pretty heavy term. Why is it going to be “historically important”? Because if bitcoin continues to work the way it’s working today, we are introducing a new concept, which is a form of digital history that is forever. If that history lasts 10 years, that’s impressive; if it lasts 100 years, that’s astonishing; if it lasts 1,000 years, it becomes an enduring monument—an edifice—of immutability. A system of forever, unshakable history that is truly a monument of our civilization. We have to consider the possibility that will happen.

… You can see evidence of proof-of-work systems throughout human civilization. There is some big pointy proof-of-work in Cairo: the pyramids. There is some big stone proof-of-work in Paris: the Cathedral of Notre Dame. In fact, proof-of-work is something that our civilization does quite often.

The Bitcoin blockchain not only can’t scale to useful transaction rates — it doesn’t scale to useful information, only to a ledger of Bitcoin transactions. Truly immutable timestamps could be useful — assuming anyone finds a timestamp use case so important that it warrants a country-sized percentage of the world’s electricity consumption.

This is the sunk cost fallacy: just because you spent a lot of effort on something doesn’t mean it was worth it, or that it’s useful going forward.

But Bitcoin is good because it uses so much power!

Bitcoin maximalists favour the argument that Bitcoin is so uniquely important and valuable, and brings so much to humanity, that it’s worth all the electricity we spend on it — because there’s no other way to get that.

Saifedean Ammous’ book The Bitcoin Standard goes further — proof-of-work is good and necessary because it spends so much electricity to generate bitcoins (pp. 218-219):

Although solving these problems might initially seem a wasteful use of computing and electric power, proof-of-work is essential to the operation of Bitcoin. By requiring the expenditure of electricity and processing power to produce new bitcoins, PoW is the only method so far discovered for making the production of a digital good reliably expensive, allowing it to be a hard money.

The question of whether Bitcoin wastes electricity is at its heart a misunderstanding of the fundamentally subjective nature of value. Electricity is generated worldwide in large quantities to satisfy the needs of consumers. The only judgment about whether this electricity has gone to waste or not lies with the consumer who pays for it. People who are willing to pay the cost of the operation of the Bitcoin network for their transactions are effectively financing this electricity consumption, which means the electricity is being produced to satisfy consumer needs and has not been wasted. Functionally speaking, PoW is the only method humans have invented for creating digital hard money. If people find that worth paying for, the electricity has not been wasted.

That is: proof-of-work is the only way yet found to do the Bitcoin trick. And if people want to spend money on it, not only is that their business and nobody else’s, but it is therefore not a waste.

This assumes the unalterable Bitcoin blockchain is intrinsically worth it, and that externalities aren’t anyone else’s business. The former is highly questionable to anyone who isn’t already a Bitcoin fan, and the Bitcoin fans are having more and more trouble convincing the non-fans of the latter.

But Bitcoin lets us coordinate people worldwide like nothing before it!

Nick Szabo argues, in his essay “Money, blockchains, and social scalability,” that — just as it’s worth spending computing power on nice user interfaces — it’s worth spending electricity to let us do the things only Bitcoin potentially allows us to do:

Instead, the secret to Bitcoin’s success is that its prolific resource consumption and poor computational scalability is buying something even more valuable: social scalability. Social scalability is the ability of an institution — a relationship or shared endeavor, in which multiple people repeatedly participate, and featuring customs, rules, or other features which constrain or motivate participants’ behaviors — to overcome shortcomings in human minds and in the motivating or constraining aspects of said institution that limit who or how many can successfully participate. Social scalability is about the ways and extents to which participants can think about and respond to institutions and fellow participants as the variety and numbers of participants in those institutions or relationships grow. It’s about human limitations, not about technological limitations or physical resource constraints.

That is — Bitcoin is good and useful and worth spending this power on, for the fantastic new things it lets us do, to coordinate huge numbers of people around the world!

The obvious answer is that just having the Internet at all turns out to do almost all the interesting bits of worldwide social coordination.

Szabo admits this, but asserts that Bitcoin is totally worth running on top so that we can coordinate internationally using a form of money with certain properties that he asserts are essential to money. These properties turn out to be … the pitch for Bitcoin.

This falls to the obvious objection — Bitcoin has not, in fact, turned out to be good at the things it was pitched as. Whatever you might claim Bitcoin’s fabulous potential to be — in practice, it’s a bad payment system hooked to a bubble-prone speculative commodity, that has resoundingly failed to scale. Mostly, it’s replayed the history of finance and scams on fast-forward, hitting its head on every step on the way down — and not much else at all.

Bitcoin does all of its possible jobs — currency, speculative commodity, store of value — worse than any alternative, and its economics are fundamentally silly and can’t possibly work. I submit that this is not worth 0.5% of the world’s electricity. As user interface engineering, Bitcoin fails the test of feasibility.

But proof-of-work helps the ecology!

This is a real-life argument: Bitcoin’s stupendous power consumption, wasting electricity to win coins, is actually good news for the ecology.

The argument is usually that Bitcoin’s tremendous power usage will motivate more efficient power generation. Therefore, Bitcoin is good for the world, and you should buy Bitcoin.

(They don’t say that last bit outright, but you know it’s the point.)

In “How Bitcoin could drive the clean energy revolution,” Peter Van Valkenbergh of CoinCenter details how heavy industry drives electricity efficiency — and never mind that proof-of-work is constructed to be anti-efficient:

The fact is that the Bitcoin protocol, right now, is providing a $200,000 bounty every 10 minutes (the bitcoin mining reward) to the person who can find the cheapest energy on the planet. Got cheap green power? Bitcoin could make building more of it well worth your time.

This just states that a theoretical incentive might exist. He doesn’t show that the incentive is realised — and he doesn’t show that it makes Bitcoin’s energy use worth it.

What actually happens when Bitcoin miners come to town is that they use so much electricity that it drives local power prices through the roof. Hydroelectric power is cheap, but the limited capacity is often pre-allocated.

Plattsburgh, in upstate New York, suffered this in late 2017 and early 2018, when two cryptocurrency mining operations used 10% of the city’s power supply — sending the city over its monthly quota of 104 MWh of cheap hydroelectric power (4.92c/kWh) from the Municipal Electric Utility Association on the St Lawrence River. This forced them to buy expensive outside power at 37c/kWh, sending the bill for the average home up by $30 to $40. Plattsburgh imposed an 18-month ban on crypto mining. Chelan, Washington, imposed a similar ban.

There used to be a slight argument that Bitcoin mining in China was just using overbuilt power capacity that wasn’t otherwise being used, as these power plants weren’t well-connected to the national grid. And a lot of this was hydroelectric, so wasn’t a CO2-generating disaster. (Though a lot was coal.) But now that these power plants are getting better-connected, China has much better uses for the power, and is pushing the miners out.

Ari Paul has claimed that “Bitcoin is incentivizing renewable energy research and growth at an unprecedented pace.” When pressed, he first demanded critics prove his claim for him, then eventually gave the example of someone he knew who bought solar panels to power a mining operation. This might count as “growth,” but Paul so far hasn’t supported his claim of “research,” let alone at an unprecedented pace.

CoinCenter is so wedded to their Bitcoin energy efficiency pitch that they tried to commission an economist to … reach their predetermined conclusions:

We’re looking for a well-credentialed energy economist or similar expert from whom we may be able to commission a well-sourced report on Bitcoin’s energy use, including:

1. Address factual inaccuracies in how some have calculated the current energy use, and offer a correct estimation
2. Offer justification for the energy expenditure, especially relative to existing money systems or data processing
3. Explain that long term incentives are for miners to find most efficient energy sources, thus developing those sources

You’d almost think their motivation had more to do with love of Bitcoin than of saving energy.

But what about the entire financial system and everyone in it?

“But what about all the energy banks use?” is a perennial Bitcoiner counterargument.

They almost never include actual numbers — they seem to think these are just words to throw out as quick counterarguments, and not checkable numbers that exist. They will try to include the entire financial system, everyone in it, and everything it does.

(This Andreas Antonopoulos video is a good example — note how he just lists a string of possible financial system expenses off the top of his head, with not a number in sight.)

It’s obvious that, say, Visa can’t possibly use power at the rate Bitcoin does, even if you include every Visa, Inc. expense and facility — if it did, you’d see it in the cost of every transaction, as you do in Bitcoin. And nobody would buy things with Visa, just as they don’t buy things with Bitcoin.

Bitcoin energy usage isn’t directly related to the amount of transactions going through it. But if Bitcoin advocates insist on comparing Bitcoin to the financial system on its energy consumption, then we should in fact look at how much work each one gets done for the energy it’s spending.

Let’s be generous and assume there will only be as many transactions in 2018 as there were in 2015, and Bitcoin transactions will only use 300kWh each, as they do now. If the existing financial system used as much power as Bitcoin, then just the non-cash payments would use 4.331×1011 transactions, times 3×105 watt-hours per transaction — which gives 1.3×1017 watt-hours, or 133 petawatt-hours.

The worldwide production of energy — all kinds of human-harnessed energy, not just electricity — in 2015 was 169.5 petawatt-hours. It’s frankly implausible that, even if you take literally the whole financial industry and everything it does everywhere, it would come anywhere near that number — unless you stretch the comparison until you equate “the financial system” and “civilisation.” Just electricity worldwide in 2015 was 15.1 petawatt-hours, by the way.

There are two important points this stupid claim about the financial system misses.

Firstly — all the other things Bitcoiners compare themselves to have every incentive to reduce their power use, and become more efficient. (The pressure is social as well as financial — banks care quite a lot about reducing environmental impact.) Bitcoin, however, doesn’t just fail to scale — it anti-scales. The more it’s used, the less efficient it is — in transaction speed and cost, in storage requirements … and in power usage.

And secondly — Bitcoin doesn’t replace the current financial system. (And can’t replace the current financial system, ’cos it doesn’t scale.) For all practical purposes, Bitcoin works only in terms of the conventional currency system. The cryptocurrency economy is negligible. Bitcoin’s only use case is as a speculative commodity, and slightly as a bad payment system.

The usual excuse at this point is to say that the Lightning Network — a new low-overhead payment network being built on top of Bitcoin — will fix it all, and give us thousands of transactions for each watt-hour spent mining bitcoins.

But the Lightning Network can run on top of lots of cryptocurrencies — e.g., there’s already a Litecoin version. It doesn’t rely on its underlying cryptocurrency being Bitcoin, or even a proof-of-work coin. You could run the Lightning Network on top of a dollar-substitute token, if it was a good payment network that non-Bitcoiners would want to use — and not just a name that Bitcoiners wave about as a future excuse for present failures.

The future

Bitcoin will never leave proof-of-work, as it has no governance that could possibly swing such a change.

Ethereum’s governance is much more coherent. Ethereum is pinning its hopes to its Casper proof-of-stake initiative, in which coins are issued by a less wasteful consensus algorithm than proof-of-work. I think Casper is likely to centralise Ethereum even more — but nobody will care as long as they can still run ICO scams on top of it, and the price of ETH doesn’t crash.

And even though Casper is starting as only a bit proof-of-stake, Ethereum will still be able to pitch itself as nicer and less of a horrifying environmental disaster than Bitcoin. Also, Ethereum advocates tend to be much more business-friendly, and not ranting nutters like Bitcoin maximalists.

I don’t expect this post to convince Bitcoin advocates, because nothing will convince a Bitcoin advocate. But I do hope the smarter ones will stop making blitheringly stupid claims about how great proof-of-work is.

Bitcoin mining can help the environment as well, take Greenland for instance.

It is ca. 70% powered by Hydroelectric. The 30% of Greenland that still uses fossil fuel is often too sparsely populated to justify the investment in a hydroelectric plant. With the addition of bitcoin mining this problem would be solved.

As a bonus, Bitcoin mining could become to Greenland what oil is to Dubai. So if not for us ranting nutters, at least support bitcoin for the greater good of Greenland and the likes;)

Very comprehensive article by someone smart who knows a lot about bitcoin. I also completely disagree with pretty much every point here, though I appreciate where the author is coming from. I think that anything which uses as many electrons as Bitcoin should be subject to a lot of scrutiny and debate.

I would like to pick apart the following passage, which is kind of an achilles heel to this article:

“It’s obvious that, say, Visa can’t possibly use power at the rate Bitcoin does, even if you include every Visa, Inc. expense and facility — if it did, you’d see it in the cost of every transaction, as you do in Bitcoin. And nobody would buy things with Visa, just as they don’t buy things with Bitcoin.”

Total operating costs for Visa in 2016 was 6.214 billion dollars. I have no idea how much of that was electricity, but let’s say it’s 1/100th of their costs. (I have no idea if that’s accurate.) If one out of every one hundred dollars goes to keep the lights on and computers humming at Visa, and they pay 10 cents per kWh, that’s 621,400,000 kWhs.

The current energy consumption of the Bitcoin network is estimated to be 68,240,000,000 Kilowatt hour [kWh]

If these assumptions are anywhere near correct, then the Bitcoin network uses about 100 times more energy than Visa. So what if Mastercard and American Express use similar amounts of energy? (I’m making huge leaps, I admit). Then Bitcoin uses 36.6% more energy than the big 3 combined. What if we include all banks and all credit card processors on every continent (because after all, Bitcoin is global). Then I think it’s possible to assert that Bitcoin uses the same amount or even less electricity than all the transaction processing networks on the planet, and we are truly getting into an apples to apples comparison. My overall point is that the statement “Visa can’t possibly use power at the rate Bitcoin does” is neither true nor does it reflect the conundrum at hand. The conundrum involves comparing Bitcoin to what exists currently, and if the two are comparable at all, then the basic premise of this article is moot.

And if we are comparing two equal entities with similar rates of consumption, then bit coin is by far the less arbitrary system. Part of the authors assertion is that “you’d see [the cost of electricity] in every [Visa] transaction]. Well we actually do! Every Visa transaction costs us money. Is the author forgetting that important fact? Furthermore, Visa fees are calculated as a straight percentage of the total transaction value. A $50K Visa transaction is much more expensive for the user, but it uses no more electricity than a $5K transaction. It is through this progressive tax system that people who transact in large values are forced to pay the freight for people who transact in smaller values, while none of them are incentivized in any way to consider to how much electricity they are using in the process, or to be conservative in that regard.

Bitcoin also charges for transactions, but not as a percentages. Instead, bitcoin transaction costs are calculated solely based on the size (in bytes) of the transaction, i.e. the amount of computation required, which is to say…transactions cost more if they use more electricity. In the gamification of energy consumption, wouldn’t the author RATHER see as system that incentivizes users to minimize their energy use rather than minimizing their money velocity? The former has the potential to minimize GHG emissions while the latter does nothing.

In the coming age of renewables we will not want for electricity in any way. There is plenty of solar, wind, and as of yet undiscovered forms of energy to be exploited which do not throw our CO2 concentrations in the atmosphere so dangerously out of whack as the current generation of fossil fuels do.

I just installed 5kW of solar on my house with 13 kWh of storage. I will produce more than I consume, and with the excess, I will mine bitcoin.

> What if we include all banks and all credit card processors on every continent (because after all, Bitcoin is global). Then I think it’s possible to assert that Bitcoin uses the same amount or even less electricity than all the transaction processing networks on the planet

Just below that I run the numbers to show that isn’t remotely possible – unless you eventually expand your definition of “all the transaction processing networks on the planet” until it’s synonymous with “all of civilisation”.

Remember: it’s an argument made by prominent Bitcoiners that if you handwave everything the financial system does, surely it adds up to more than Bitcoin. But there are actual numbers you can look up involved here, and their argument can’t possibly hold.

> If these assumptions are anywhere near correct, then the Bitcoin network uses about 100 times more energy than Visa.

For what fraction of the transactions? Assuming about 500 billion Visa transactions per year, a Visa transaction using your estimate would require 1.2 Wh. Bitcoin on the other hand requires more than 300 kWh per transaction. This means that per transaction Bitcoin needs 250,000 times more energy. They are not at all comparable.

yep. I must note again that Bitcoin’s power consumption isn’t directly related to the rate of transactions going through it – but if Bitcoiners want to compare their favourite thing to the financial system on power consumption, then comparing how efficiently each uses its energy is precisely the comparison to make.

Thanks, this is very good explanation. Just one addition: energy researchers around the world snigger at claims made by Bitcoin enthusiasts about how Bitcoin supposedly promotes renewable energy use.

On the contrary, Bitcoin mining is one of the least renewable-compatible industrial processes there are. (As long as we’re not talking about hydro or geothermal, both of which have very specific siting demands and are not really expandable in most developed countries.)

The reason for this is simple. New, promising renewable energy sources, namely wind and solar PV, do not produce steady power like coal plants or hydro stations do. Instead, for reasons that should be obvious, they produce only during favorable weather conditions. In no case do these conditions prevail for more than approximately 45% of the time. (That’s top-end “capacity factor” from very large offshore wind power plants; for typical solar PV, the capacity factor would be from 8 to 15 percent.)

So for the rest of the time, the electricity needs to be provided by some other means. This is THE major problem and bottleneck with renewable energy expansion plans these days: the generators themselves are already relatively cheap, but they produce intermittent power.

Yes, there are some ways these problems can be mitigated (e.g. vast interconnector networks connecting multiple generator sites), but weather conditions tend to correlate over long distances. Night, in particular, tends to fall equally no matter how many solar panels you have installed. Batteries are another theoretical solution, but the RE + battery combo required for steady 24/7 power supply will not win any awards in the least cost energy category any time soon (that is, as long as coal burning is allowed). So one of the main headaches for those of us who are interested in cleaning up the world’s energy system is how to increase the flexibility of demand.

Now in Bitcoin, we have expensive, single-purpose investments in ASIC miners. These investments need to be recouped as fast as possible, because otherwise the miners will become obsolete before they gain even their costs. Who does seriously believe any miner in his right mind would throttle the mining operations in response to power supply?

Yup, none.

Even the old bugbears of inflexible, energy-intensive 24/7 processes like smelting are getting into flexibility act and redesigning their technology to better respond to variable supply. Yet here we have people who blithely claim that adding extremely inflexible demand is great for renewable energy.

I’ve been penning a post on how Bitcoin could establish a symbiotic relationship with renewable energy – looking at how there are no current selfish incentives for nations to utilise RE outside global coercion / subsidies / quotas etc, and how the flexibility of where mining operations can be located might help subsidise establishing RE plants in more resource rich locations, which are further from demand, and fund the building out of the electrical grid infrastructure.

But, Janne, your point on inflexible demand vs flexible supply is the strongest argument I’ve seen yet against Bitcoin in RE.
My thoughts had previously been stuck on how flexible demand had problems with RE who are unable to increase or decrease their production to match that demand unlike coal. (Think energy consumption very high at night, but solar produces nothing there)

The inflexible mining demand vs fluctuating supply problem definitely makes sense when it comes to solar and wind.
You mention though how hydro and geothermal are constant and generally over produce.
Iceland has been only requiring 5% of their geothermal energy production for years and the plan to build a submarine cable to the British Isles is on the table, but extravagantly expensive.

Do you think a tempered approach where Bitcoin mining is a perfect match for hydro and geothermal, but not for solar or wind, is more accurate?
Then again, the problem is we are all competing against coal, oil and gas who beat RE on almost every other front:
1) ability to export surplus fuel globally at huge profit
2) ability to adjust production to meet demand
3) location is more dependent on transport infrastructure which is normally located closer to where there is high demand (populated areas) which reduces electricity transport cost

So point taken with solar and wind (until we have solar farms in space that is), but could Bitcoin be of interest to those places with excess hydroelectric and geothermal power but don’t need extra funding to build out their electricity grid infrastructure?

As it stands, the economics of Bitcoin mining strongly incentivise the miners to pump out hash 24/7. The lower the energy costs as a share of total cost, the more true this is. (Theoretically, old miners that are uneconomical to run otherwise could absorb cheap excess electricity, but a) they likely won’t add up to much and b) there are other takers for excess electricity. And then you have other costs that run 24/7, like floor space, that still incentivise the miners to maximise utilisation.) So yes, mining’s demand profile is more in tune with “baseload” capable or “dispatchable” supply, like hydro, geothermal, or nuclear. Or coal.

The problem is that in all future energy scenarios, dispatchable low carbon sources would be in great demand to help with variation in variable renewable energy production. There are certainly some edge cases where, for example, a run of the river hydro plant (that is, one that has no large reservoirs and thus cannot conserve water) has excess capacity and so could supply a miner with steady low-carbon power that would otherwise be wasted. But these are, by and large, exceptional and most likely temporary situations.

And yes, in theory Bitcoin mining could locate close to otherwise difficult to harness low carbon energy sources. But power connectors are not that expensive, and one needs to keep in mind that there are also buttloads of stranded coal and lignite deposits that are currently not economical to mine, but might be economical if there were a steady baseload demand right next to the mine and the power plant. So Bitcoin mining’s location independence cuts both ways, in terms of carbon emission reductions. If I were a betting man, I’d say the latter is much more likely scenario than the former, because low carbon energy sources are all very capital intensive (that is, have high upfront costs and become profitable only after quite some time in use) and thus are very unlikely pairs for something that is as volatile as cryptocurrency mining. Fossil fuel sources have relatively low upfront costs, and are the power source of choice if you don’t know whether the demand even exists in a decade.

I’ve been looking at this issue a bit more and have had some chats with other people in the energy field, and still haven’t found even one person who thinks Bitcoin mining is good or even neutral for renewables.

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The content of this site is journalism and personal opinion. Nothing contained on this site is, or should be construed as providing or offering, investment, legal, accounting, tax or other advice. Do not act on any opinion expressed here without consulting a qualified professional. I do not hold a position in any crypto asset or cryptocurrency or blockchain company.